He then took a deep dive into Genomma Lab (LABB.MX), a Mexican producer of over-the counter pharmaceuticals, generic drugs, and personal care products. Now, I’m sitting with a Chromebook in a large auditorium, so I hope I’ve captured the essence of his argument.

When Castor first looked at Genomma, he saw healthy growth, operating margins of about 25%, and thought it might be a stock he would like to own. On closer examination, cash levels had been falling below levels that would have been appropriate given its income growth. In 2008, the company had 1.3 billion pesos, It generated 5.2 billion peso in net income from 2008 through the second quarter of 2013. That, Castor says, should leave 2.5 billion peso after acquisitions. It has negative 2.4 billion peso, he said.

Castor believes the cash has disappeared into working capital, which has grown from 23% to more than 50% since 2008. Comparable company PrestigeBrand (PBH) uses 11%; Unilever (UL) and Colgate-Palmolive (CL) far less.

By his analysis, the companies profit should be about 0.7 peso per share, which means the company should trade ta about 10.50 at a generous 15x valuation. It currently trades at 28.30 peso.

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.